Are you being asked to provide a waiver of subrogation on a worker's compensation certificate of insurance?
Don't worry, this is a common request. However, it's important you understand the ramifications to your business and insurance coverage by offering a waiver of subrogation.
This short video breaks down everything you need to know (or keep reading)...
What is a Worker's Comp Waiver of Subrogation?
As an employer, it's important to know about a worker's compensation waiver of subrogation. This is a waiver that can protect your business from potential penalties in the event of an employee getting injured due to the fault of a third party.
In this scenario, your organization and insurance carrier may have a right to recover any expenses related to the employee’s resulting workers’ compensation insurance claim from the third party.
This practice is also known as subrogation. Essentially, subrogation can help hold the third party responsible for their actions (or lack thereof), protect your organization from being penalized for these wrongdoings, and ensure the ill or injured employee receives accurate benefits for their ailment.
A waiver of subrogation is an agreement between two parties in which one party (the employer) agrees not to seek reimbursement from the other party (the third party) for any workers’ compensation benefits paid out. This waiver is often used as a way to promote good relations between the employer and third party.
While a waiver of subrogation may seem like a no-brainer, it's important to understand the potential implications before signing on the dotted line.
For instance, if your organization waives its right of subrogation against a negligent third party, your insurance company may be less inclined to defend or settle a claim against that same third party in the future.
Essentially, subrogation can help hold the third party responsible for their actions (or lack thereof), protect your organization from being penalized for these wrongdoings, and ensure the ill or injured employee receives accurate benefits for their ailment.
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What is Subrogation?
While most workers’ compensation claims consist of just two parties—namely, your organization and an ill or injured employee—subrogation can be necessary when these claims stem from a third party.
Claims that typically support subrogation include those caused by:
- An employee becomes ill or injured while on the property of another organization or contractor (e.g., a slip and trip incident)
- An employee becomes ill or injured due to another person’s carelessness (e.g., a motor vehicle accident)
- An employee becomes ill or injured while operating workplace equipment owned by a third party (e.g., a machine-related incident)
The subrogation potential for a workers’ compensation claim is generally determined at the beginning of the claim process. Once subrogation is proposed, your insurance carrier will conduct an investigation to determine who is at fault for the employee’s illness or injury, as well as analyze overall claim compensability. This investigation usually includes a thorough review of the following incident information:
- Incident reports
- Supporting medical records
- Witness statements
- Photo or video footage
- Equipment maintenance and repair schedules (if applicable)
- Contracts or agreements regarding liability and compensation
From there, your insurance carrier will inform the third party (or the third party’s insurance carrier) of the subrogation and how they will be expected to cover the claim expenses.
Subrogation is often a slow process, as the final amount that the third party will owe for the claim depends on when (and how) the employee heals from their illness or injury. In other words, the associated workers’ compensation claim must be closed and resolved for a subrogation amount to be reached.
Further, it’s important to keep in mind that the employee may also file their own lawsuit against the third party for causing their illness or injury. When doing so, the employee must clearly communicate the details of the lawsuit with your organization and insurance carrier.
If such legal action results in the employee being awarded money, this total would need to be subtracted from the subrogation amount determined by your insurance carrier. Otherwise, the third party would be overpaying for the claim expenses, and the employee would be receiving extra workers’ compensation benefits in addition to their separate settlement.
Waiver of Subrogation
In some circumstances, certain third parties—specifically, other organizations or contractors—may ask your organization to sign a waiver of subrogation. This document essentially relinquishes your organization’s right to subrogate the other party in the event that they are found responsible for an employee’s illness or injury.
Waivers of subrogation are often included as part of initial business contracts or agreements to reduce the risk of future conflicts.
For example, another organization may require your organization to sign a waiver of subrogation before allowing your employees to work on their job site in an effort to minimize liability concerns and cut insurance costs.
While your insurance carrier may permit your organization to sign a waiver of subrogation if a business contract requires it, doing so could result in elevated premium expenses.
After all, relinquishing your right to subrogate makes your organization riskier to insure, seeing as you will have to handle any workers’ compensation claims caused by the third party.
What’s more, an ill or injured employee could take advantage of the waiver by receiving extra benefits from filing both a workers’ compensation claim with your organization as well as a separate liability lawsuit against the third party.
Without subrogation to disperse benefits between the claim and the lawsuit adequately, the employee could receive as much as double the benefits for their illness or injury.
However, some states have laws against this practice. In any case, be sure to consult your state’s specific workers’ compensation regulations and appropriate legal counsel before signing a waiver of subrogation.
Subrogation can offer both advantages and disadvantages to your organization. In terms of benefits, subrogation can help ensure your organization isn’t penalized for workers’ compensation claims you didn’t cause.
By allowing claim costs to be recovered from a third party rather than your own insurance carrier, subrogation can also reduce your organization’s experience modification factor and—in turn—your workers’ compensation premium costs.
On the other hand, subrogation can have consequences. In particular, if your organization has a business relationship with the third party that causes an employee’s injury or illness, engaging in subrogation could damage that relationship. Despite this, it’s still important to utilize subrogation to hold the third-party responsible for their wrongdoings.
Overall, remember that every workers’ compensation claim is different. Make sure to reach out to your insurance carrier and adequate legal counsel to determine whether a claim requires subrogation. Contact us today for additional workers’ compensation resources.
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